Re: All Wise One’s PLEASE HELP US!!!L/O - Posted by Bill Gatten
Posted by Bill Gatten on April 17, 1999 at 17:39:38:
How much of the monthly payment would she be willing to contribute in order to save herself from major debt-relief taxes on a Foreclosure or and Offer in Compromise, were she to have to walk away?
Even if she tried to lease or Lease Option the property, the payments are so high that her negative cash flow (not to mention maintenance, management and vacancy factors) would ingest her and hock her up in chunks (as it were). She’d be at least $1,500 upside-down monthly (considering Neg CF, plus 1.0% mtce, and 1-2 payments per-year for vacancy budgeting).
Quite candidly, the following is what I do when I see these (and I usually make a buck or two in the process):
Go to the seller, and instead of trying to figure out a way to help yourself: offer to sit down comfortably with no obligation or pressure on your part, and show her a way she can help herself, with your assistance and escape a major problem.
Get her agreement to contribute enough monthly to bring the PITI down to no more than 0.9% of the property’s current value, pointing out that there will be no management, maintenance, upkeep or vacancy (landlord) costs. In other words, she should cover most, if not ALL, of the 2nd TD (after all, she spent the money on herself… why should a buyer of her home have to pay her Mercedes payment… or the payments on her boat or airplane… or her $70K debt consolidation?)
Give her a $100 Option Fee to purchase the house… in, say, a month.
Run a newspaper ad that says: Why Rent? Enjoy the Benefits of Ownership. No Bank Qual. Ten- percent total moves you in. Immac. $335,000 4+3, only $2500 p.mo,+tax and ins.
When they call, and they will (“Build it, they will come”), you say: "Ah yes, we have this beautiful home over there in… with payments of about $2,900 per month, and I’m looking for someone who can afford the up front amount and the payments… to basically just give it to. (pause) The only thing I want out of it is to have you either sell it or refinance in a couple years and pay off the existing loan and give me back the little bit of equity I have in it now. (pause) Then, if there’s BEEN any appreciation by that time… I’d like to split it with you.
Now, when the right person steps up, you then exercise your option by having the owner place the property into her own land trust (in her own name) and naming you and your “buyer” as 2nd and 3rd beneficiaries.
Your agreement with the 1st and 3rd Bene. (seller and your buyer) is that they will make all the payments, and that you will merely participate in the proceeds of disposition at the termination of the trust: e.g., 10% benef. interest stays with the seller to be forfeited to you at termination; forty- percent goes to you; and fifty- percent goes to the 3rd bene.
Voting rights (power of direction) are 50:50 between you and the 3rd benef.: the 1st benef. having given you her full directive powers).
It’s not complicated. It helps everyone. And YOU just bought yourself a legally shielded income property with no down, no qualifying, no credit risk, no DOS violation, no taxable transfer and no payments. You didn’t get a pos. CF; but you got a pretty good chunk up front and a lot (hopefully) at the back end. The only cash out of pocket was the newspaper ad, and the seller should have paid for that!
If I can help, call me or e-mail me… I’m always happy to conference with prospects CRE folks (be they newbies or old fogies, like myself).